ATLANTA -- Moody's Investors Service yesterday released a comparison of four Carolina public power utilities that could spell ratings trouble for the agencies.

The report, entitled "Public Power in the Carolinas: Future Challenges in Deregulated Markets," is Moody's first comprehensive regional comparison of utilities, focusing on: the North Carolina Eastern Municipal Power Agency, the North Carolina Municipal Power Agency No. 1, and the Piedmont Municipal Power Agency in South Carolina. Moody's rates the bonds of each authority A.

The rating agency concluded that, given the increasing governmental deregulation of the power industry, each of these three authorities is at a competitive disadvantage when compared with other utilities in the region.

"Maintaining debt credit quality for each of the three [joint power agencies], particularly Eastern and Piedmont, will depend on the ability of each agency's participants to lower power costs, reduce retail rates, and expand customer bases," Moody's said.

"Failure to implement effective responses could negatively affect JPA and participant bond ratings," Moody's said.

On the other hand, Moody's concluded that the South Carolina Public Service Authority [Santee Cooper], whose bonds it rates A1, could thrive in a deregulated market and may become a candidate for an upgrade.

"Santee Cooper, with its well-managed operations, below-average retail and wholesale rates, and ample low-cost power supply, appears well-positioned to compete in a deregulated market, despite some service area vulnerability," Moody's said.

"The utility's current credit position is stable in the short term and may improve in the longer term if it is able to strengthen or expand its customer base or both," Moody's said.

Moody's report comes at a time when electric utilities have been forced to adapt to federal deregulation of the industry. In the Energy Policy Act adopted in 1992, Congress explicitly permitted power companies to buy electricity from any supplier, even if that power is carded over lines owned by another electric utility.

The act also created the potential for retail customers to bypass their local utility altogether and buy power from a cheaper source if so permitted by state law. Legislation permitting "retail wheeling" has not yet been passed in either North or South Carolina, but probably will be eventually, according to Moody's.

So far in 1994, Moody's has lowered bond ratings at two public power agencies, the Municipal Electric Authority of Georgia, which was downgraded to A from A1 in May, and the Southern Minnesota Municipal Power Agency, downgraded to A from A1 earlier this month.

In each case, Moody's cited the authority's difficulties in competing in the current deregulated climate.

In its analysis of the three Carolinas' joint power agencies, Moody's repeatedly contrasted their situation with that of Santee Cooper.

"While the three JPAs have many credit strengths -- including the legal security provided by take or pay contracts, established power supplies, satisfactory financial performance, and broad geographic service areas -- in contrast to Santee Cooper, the JPAs and their participants will likely be negatively affected by increased competition," the report said.

"Their reliance on expensive nuclear power, regionally uncompetitive retail rates, and high debt levels place them at a disadvantage in a more competitive market," the report continued.

Edward Krauss, a Moody's vice president, said that the rating agency is not currently working on a similar analysis for another pan of the country but may do so in the future.

"What was special in this report is that we evaluated the competitive position and credit outlook of four major public power agencies in a regional setting," he said. "We are continuing to evaluate the competitive position of all major power agencies."

Krauss also noted that, collectively, the four utilities covered in the report have approximately $10 billion of bonds outstanding -- about 10% of the total rated uninsured debt of public power issuers in the country.

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